Reining in the expectations of offline payments
Nurminen, Julia; Schreck, Johanna (26.10.2023)
Numero
130Julkaisija
Bank of Finland
2023
Julkaisun pysyvä osoite on
https://urn.fi/URN:ISBN:978-952-323-450-5Tiivistelmä
In the recent decades, the evolution of the payments landscape has been driven by digitalisation and technological development. With consumer preferences and expectations changing and the use of cash declining, central banks in many jurisdictions have begun to explore digital alternatives that would be capable of preserving the unique properties of tangible cash in the digital age. An option under consideration is a central bank digital currency that functions offline, i.e., an offline CBDC.
The growing interest in offline CBDCs reflects the expectation that the utility of the digital form of publicly available money should closely match that of cash. This is unsurprising given that cash remains the cornerstone of the modern monetary system. It is a public good that comes with benefits such as built-in security features, immediate settlement, anonymity, general acceptability and inclusivity.
Whilst some argue that the aforementioned properties could be incorporated into a CBDC using tokenisation, Project Pluto, an empirical study on offline payments conducted at the Bank of Finland, suggests that the view may be overly optimistic. In fact, the findings of Project Pluto imply that this may be true regardless of whether a CBDC is balance-based or token-based. The prospect is also supported by the precedent set by the Avant card system, conceivably the first CBDC in the world.
Project Pluto demonstrates in particular that the token-based offline CBDC model is encumbered by certain technical and performance-related limitations as well as risks and challenges relating to counterfeiting and privacy. At the same time, the only identified benefit of the token-based model appears to concern the theoretical ability of a central bank to better control the amount of money in circulation. The findings indicate that replicating the properties of cash in a CBDC may at the minimum require certain trade-offs even if the design is based on tokenisation.
It is concluded that as there is likely to be limited demand for an offline CBDC that could fall short of, inter alia, user demands, the expectations placed upon it in terms of e.g. preparedness and contingency planning may also be disproportionate.
The growing interest in offline CBDCs reflects the expectation that the utility of the digital form of publicly available money should closely match that of cash. This is unsurprising given that cash remains the cornerstone of the modern monetary system. It is a public good that comes with benefits such as built-in security features, immediate settlement, anonymity, general acceptability and inclusivity.
Whilst some argue that the aforementioned properties could be incorporated into a CBDC using tokenisation, Project Pluto, an empirical study on offline payments conducted at the Bank of Finland, suggests that the view may be overly optimistic. In fact, the findings of Project Pluto imply that this may be true regardless of whether a CBDC is balance-based or token-based. The prospect is also supported by the precedent set by the Avant card system, conceivably the first CBDC in the world.
Project Pluto demonstrates in particular that the token-based offline CBDC model is encumbered by certain technical and performance-related limitations as well as risks and challenges relating to counterfeiting and privacy. At the same time, the only identified benefit of the token-based model appears to concern the theoretical ability of a central bank to better control the amount of money in circulation. The findings indicate that replicating the properties of cash in a CBDC may at the minimum require certain trade-offs even if the design is based on tokenisation.
It is concluded that as there is likely to be limited demand for an offline CBDC that could fall short of, inter alia, user demands, the expectations placed upon it in terms of e.g. preparedness and contingency planning may also be disproportionate.